How a $34 Minimum Wage Makes Sense

Let’s say you started a credit card payment processing company. Ten years later your business is raking in $2.2 million in profit after paying yourself an annual salary of $1 million. You find out from a study on pay and happiness that people who make less than $70,000 aren’t as happy as everyone else, so you cut your pay to $70,000 and use the savings to bring your lower paid employees up to your new $70,000 salary.

Sound radical?

It’s what CEO Dan Price recently announced to his 120 employees at Gravity Payments. From here on out, the minimum wage at Gravity Payments will be about $34 an hour blowing the lid off every federal and state minimum wage mandate. Naturally, the media jumped on the story re-igniting the CEO pay debate. It’s a headliner for sure, but here’s a side of the issue the media missed.

Dan Price says the reason for his decision is to raise employee happiness—a pay satisfaction and motivation issue—begging the age-old questions, “Does money buy happiness” and “Is money a motivator?”

The report that prompted Price to raise annual employee pay to at least $70,000 addressed the happiness question concluding that money—at least up to $70,000—actually does buy happiness. So over the next three years, Price is going to eliminate a major barrier to happiness for his employees. But what happens to happiness after the first $70,000 is reached? Funny thing, money loses its magic when we add to the $70,000. Above that level it doesn’t seem to matter much.

Doesn’t it make you wonder what’s so special about the first $70,000 you make every year and why the magic dies so soon above that?

It’s easy to see how money can be important to people struggling to maintain a decent standard of living. When we’re just making enough to pay the rent and buy groceries, any little hiccup—like an illness or car problem—can wreak havoc on an already tight budget. Until we reach a level that gives us some breathing room, research confirms that money can be fairly motivating. So we shouldn’t be surprised that at least some of our happiness depends on how well we’re able to take care of the basics.

As to the money we make over and above that, motivation studies show that factors besides money are more important for people to be happy and productive. That’s why the happiness curve flattens out so quickly. Price obviously understands that. He gives employees a lot of responsibility in an organization with almost no hierarchy. Instead of titles and layers of authority, employees are treated like “mini-CEOs” responsible for specific projects and outcomes. Add unlimited time off for employees and you have a company fueled by premium trust.

Price explains that he expects employees to be “A” players and to act accordingly, so trust is high, but so are expectations. And with this big pay increase for lower paid staff, at least one excuse for not delivering—unhappy workers—will be off the table.

The bigger story the media missed is how Dan Price is applying lessons from research on pay, happiness, and motivation to create a culture of trust and commitment. His experience suggests it’s not how much the CEO is paid that really matters, but how well the CEO understands these lessons and applies them to the business. The way Price applies them may seem a bit dramatic, but no doubt his employees know he’s serious about them and how they help the business.

Kevin Herring is co-author of Practical Guide for Internal Consultants, and President of Ascent Management Consulting. Kevin can be contacted at kevinh@ascentmgt.com.

Ascent Management Consulting is found at www.ascentmgt.com and specializes in performance turnarounds, leadership coaching, and appraisal-less performance management.